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November 05, 2005

Indiana: The "Tax Shift" Game Catches up with Daniels

A new progressive mantra, rapidly becoming a cliche, is that in a fiscally challenging environment, there are no tax cuts-- only tax shifts. That is, when you've got a deficit to make up, every dollar of tax cuts for a particular individual or company is going to have to be made up eventually by someone else.

Like most cliches, this one has a lot of truth to it. The federal tax cuts of the last 5 years are being funded partially by borrowing right now. We may not have to pony up to pay for these debts-- but if we don't, our grandchildren will, in a "tax shift" to future workers.

The trouble is, it can be hard to convince people that this is true when you have no idea where (or when) the other shoe is going to fall. But at the state level, where balanced budget requirements are stricter, it's much harder for elected officials to shunt costs into the future. Witness the 2006-2007 Indiana state budget, which got balanced largely by putting a cap on state property tax relief payments to local governments. A op-ed in the Fort Wayne News Sentinel speculates that Governor Mitch Daniels' plummeting poll ratings can be attributed to the fact that he pushed through a "tax shift" away from the state and toward locals, which will end up resulting in big local property tax hikes-- and that the public sees this quite clearly.

The Sentinel op-ed's argument is, in the end, just speculation. They don't show that the governor's lousy poll numbers are due to his handling of property taxes. But no one's offering any other explanation for "The Blade's" dropping popularity. And if this interpretation is true, it's big news-- if only because state and federal lawmakers across the nation have been pushing through the same sort of tax shift, gambling that they can force the cost of services to "trickle down" to lower levels of government without taxpayers putting two and two together. It's nice to see some evidence that this sleight-of-hand approach to fiscal policymaking doesn't always work.

Meanwhile, the Speaker of the House, Brian Bosma, wants the state to help reduce homeowner property taxes by picking up the tab for child welfare services, which is a cost that locals currently pay themselves through property taxes. So Bosma appears to be taking at least baby steps toward recognizing that passing the buck to locals is not a sustainable strategy. On the other hand, as the Indianapolis Star tells it, Bosma won't commit to explaining where the state's going to find the money for this. But Bosma's position is a good start.

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The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state - Adam Smith, An Inquiry Into The Nature and Causes of the Wealth of Nations, 1776